A bulk carrier is a seagoing vessel that is specially designed to transport unpackaged bulk cargo such as grains, coal, ore, and cement in its cargo holds. As these shipping firms effect the transport of large quantities of these goods across the oceans and between different companies, they are critical to international trade.
There are two primary ways in which dry bulk shippers are compensated for the use of their ships: time charter rate and voyage rate. The latter is a good method for a customer to use if it has a one-off shipment but in most cases time charter is the way to go if a company is a frequent shipper.
The dry bulk market was one of the shipping industry’s best performers during 2017. This was due to a rebound in global economic growth, which in turn led to increased demand for dry bulk commodities, besides a result of restrain in terms of new tonnage supply.
However, the price of prime aged vessels is expected to rise over the next two years. Putting extended trade disputes aside, most market segments have favorable tailwinds. The contraction of yard capacity is expected to support the replacement value of ships, while short term earnings have either bottomed, or started to recover in most markets.
Dry bulk asset values are seeing the benefit of a higher earnings environment brought on by a steady rise in ton mile demand and fleet recycling efforts in 2016 and 2017. Upside remains as scheduled deliveries of outstanding orders are moderate.
In the first half of 2017 the volume of the emerging-market exports increased by 4.6% compared to a year earlier, the fastest growth since 2011; not only this, during the same period the BRIC economies (Brazil, Russia, India and China) all grew simultaneously for the first time in three years and for the first time since 2009, twenty one out of twenty four emerging countries have reported higher – than the previous quarter – quarterly GDP figures.
However, the trade war is a speeding train, accelerating with every trade-restrictive retaliatory measure imposed and becoming ever more difficult to stop. The long-term effect provides uncertainty and could possibly derail current global growth if the measures are kept or further escalated. Even though the world’s three largest economies are involved, the effect on shipping, in terms of volumes, is somewhat limited.
BIMCO’s chief shipping analyst Peter Sand comments “The trade war adds painful uncertainty for the shipping industry, as it distorts the free flow of goods, changes trade lanes and makes it difficult for ship operators and owners to position ships efficiently in the market.
The dry bulk shipping industry will by far be the most affected in terms of volumes, both in scheduled and already implemented tariffs. However, the dry bulk products targeted so far only represent a minimal amount of the total seaborne dry bulk trade.
The first round of tariffs targets only dry bulk goods. In 2017, the US imported 18.8 million tonnes of the tariffed steel commodities and 4.4 million tonnes of the tariffed aluminium products via the sea. Together the affected steel and aluminium commodities, amounted to 0.5% of the total dry bulk seaborne trade in 2017.
The dry bulk shipping industry has already been affected by these tariffs and will be further affected when more tariffs come into force during July. However, the impact on the dry bulk shipping industry in terms of volumes remains limited, Sand said.
(References: Platts, Vessels Value, Hellenic Shipping News, Seeking Alpha, Safety4Sea)
Sea News Feature, July 5